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Thursday, 6 May 1920

Mr HUGHES (Bendigo) (Prime Minister and Attorney-General) . - I move -

That this Bill be now read a second time.

In order that honorable members may better understand and appreciate the advantages of the agreement set out in the schedule to this Bill, it will be necessary for me to say something on the part played by oil in modern economic and national life. Just as the first half of the last century was called the steam age, so the time in which we now live may be fairly called the petrol age. To-day, as from the beginning of the machinemanufacturing era, the welfare of nations depends largely on fuel. But whereas formerly the fuel on which manufacturing nations relied was coal, they have now a choice between coal and oil. The effect of the oil engine upon civilization is most marked. It may be said that the internal combustion engine has effected as great a revolution as did the steamengine. If honorable members will try and conjure in their minds a picture of a world without oil. without oil-engines in any of their manifold forms, they will see a world very different indeed from that in which we exist. If they look upon these two pictures of what was and what is, they will be struck with the absolute dependence of the nations upon oil. They will be impressed by the extent to which the civilized world has adjusted itself to the motor with the internal combustion engine in some one or other of its various forms. That which we call civilized life depends to a very large extent upon adequate supplies of oil. It is vital to us, as to all nations, that we should have not only an abundance of fuel - both coal and oil - but that Ave should have it cheap. It may be said that every increase in the price of fuel is a tax upon industry, and affects wages, which in turn affects the standard of living. Not only is oil the very spirit of the life of industry, but in war, as well as in peace, its power is pre-eminent. The last war was a petrol war. Those millions of men could not have been fed; that great Front, stretching thousands of miles, could not have been maintained; munitions could not have been carried; aeroplanes and tanks' would have been inanimate things without oil. That complete dependence upon oil which is the lot of all nations is in Australia intensified by our geographical position. To us, oil is essential for our defence. When we consider our isolation, our vast coast-line and our wide spaces, we see at once that without a swift-driven navy, without means of transporting men rapidly, without cohorts of aeroplanes, our position is untenable. And yet it has happened quite recently that, notwithstanding our complete dependence upon oil for national defence, such small quantities of oil have been available as to have absolutely prohibited the navy from moving had an emergency arisen. Oil is vital to us, and, indeed, to 4 all nations. As every honorable member must know - and I merely remind them of facts which are as patent as the facts of night and day - the supply of fuel of all kinds is limited. It is said - I know not how true it is - that the supply of oil is not likely to outlast the increasing demands of the next few decades. It is certain that the demand for oil has increased portentously, and that it now plays a part in the national and economic life of nations second only - if second - to that of coal.

To show how the world's consumption of oil has increased, I propose to quote some figures. In 3910 the world's consumption of crude oil was about 32S,000,000 barrels; in 1914 the total quantity had grown to close upon 400,000,000 barrels. In 1919 it was estimated at 600,000,000 barrels! The position in Australia may be shown by the following figures relating to residual and refined oils: In 1910 we consumed 25,725,000 gallons; in 1914-15 our consumption was 43,000,000 gallons; and in 1918-19 it was 51,000.000 gallons. Roughly, the world's consumption of crude oil doubled in ten years. In the same period our consumption of the residual and refined products increased in the same proportion. Those figures show beyond all doubt that the world is becoming more and more dependent upon oil, and that the tendency in that direction is as marked in Australia as elsewhere.

I said just now something about the part which oil played in the defence of Australia. I propose to quote some figures to show to what extent our Navy is dependent on oil and the extent to which the Commonwealth and the Government are consumers of oil. In 1910 the Navy consumed 1,000 tons; in 1914 it increased to 10,000 tons, while in J 919-20 we are consuming 50,000 tons. These figures speak for themselves. And when we consider the price at which we bought oil in 1910, and the price at which we are buying to-day, honorable members must be impressed with the gravity of the position and recognise the need for some immediate remedy. "Clearly, the necessity for securing ample supplies of fuel oil - that is to say, the oil used for generating steam in vessels of the Navy so constructed as to permit of fuel oil being used in place of coal - is obvious. Since it goes without saying that' oil is vitally essential to this country for defence pur- poses, and for other purposes also, I want to turn now to the question of supplies of oil, which is, as I have termed it, literally the spirit of the life of industry and the means by which this nation maintains its first line of defence, namely, the Navy. What are the sources of supply? Where are they? Who control and own them? First, as to the sources: There are two, namely, shale oil- and well oil. Shale oil, of which we have had some experience in this country, can be dismissed in a few words. The quantity of shale oil produced as compared with the volume of oil consumed in the world is so small as to be for all practical purposes negligible. In this country, despite the offer of a bonus of 2¼d. per gallon in September, 1917, to Australian companies producing crude oil from shale, because the bonus previously offered was not considered sufficient, the production of oil from shale in Australia is only about 2,800,000 gallons per annum, whilst we consume ( of oil and its derivatives 52,000,000 gallons per annum. The Leader of the Opposition (Mr. Tudor), speaking in 1917 on the Shale Oil Bounty Bill, said -

Xdoubt whether the extraction of crude oil from shale is the wisest course to follow for the production of oil in Australia. . . . Most honorable members will agree with me that it would have been sufficient to make available £35,000 a year or thereabouts to encourage boring operations.

We may then put shale on one side as a source from which we can hope to derive supplies of oil adequate to meet our requirements; whether it be for fuel oil, benzine, motor spirit, or oil for lighting purposes.

At present we have no oil wells in Australia or its Territories. I shall later touch shortly this aspect of the question. But, as I have said, we have as yet not discovered oil in Australia. The chief sources of liquid oil throughout the world to-day are the United States of America, Mexico, Russia, Persia, Roumania, and the Dutch Indies. For all practical purposes, with the one exception covered by this Bill, all these supplies are controlled by a few very great foreign companies, of which the Standard Oil Company is the chief. I suppose that we have all said a great deal about the Standard Oil Company in our. time. I know that I have done so. Its power is very great. To what extent these great companies - and I shall quote them, so far as I have been able to compile a list, in a moment or two - work together under any arrangement I cannot say. But we have to look at the facts, and I think that they speak in a manner that none but those who are wilfully blind can misunderstand. It might be perfectly true if those great companies told us that there were no arrangements by which the world has been parcelled out for the supply of oil, or no arrangement as to competition either in price or in any other way, between them - I mean no arrangement binding at law or cognisable by the Courts, for it will probably be found that such arrangements, if any, are what is known, for some obscure reason, as "gentlemen's agreements." But it is, I think, pretty obvious that there are arrangements of some sort which, in fact, bring about the result I have suggested, and present effective competition.

The principal oil companies in the order of importance in the world to-day are: The Standard Oil Company; the Royal Dutch "Shell" Group; the Anglo-Persian and Burmah Oil Companies, which I bracket together, because their operations are interlocked; the Mexican Eagle Oil Company, now controlled by the " Shell " Group ; the Mexican Petroleum Company; the Union Oil Company, of California; the WatersPierce Company, of Mexico; the Texas Oil Company, and Nobels', of Russia. In addition to these, there are three large Roumanian companies, which are controlled, one by the Standard Oil Company, one by the " Shell," while the other, before the war, was controlled by the Deutsche Bank. I am unable to say who owns this now. ' There are a number of companies, of a subsidiary nature, of whom one hears a great deal, but they do not own oil wells. The- companies to which I have referred by name are the companies which actually own the great oil wells of the world.

The companies that supply Australia's requirements are, mainly, the " Shell " Company, the Standard Oil Company, and the Texas Oil Company. I want honorable members to follow a few figures I intend to give, because they are very interesting. The "Shell" Company supplies nearly all the fuel oil and a large proportion of the benzine consumed in Australia. The Standard Oil Company supplies most. of the kerosene- and practically all the lubricants. As I have said, whether the trade is divided in this way by mere- happy or unhappy chance, I am unable to say; but the facts are as I have stated them. Of 5,811,824 gallons of residual oil, that is to say, fuel oil, imported for the year ending June, 1919, all but 40,000 gallons were supplied by the " Shell " Company, whereas of 7,440,097 gallons of lubricating oil imported, less than 100,000 came from the ".Shell" Company, and the rest came from the United States of America. Of 16,672,963 gallons of kerosene and other- refined petroleum burning oils imported, 14,548,123 gallons came from the United States of America. It is very clear, therefore, that we are dependent upon three companies, two American and or.s Dutch, for our oil supplies, lj is evident, also, that under some arrangement, or bv mere blind chance, we are supplied from one source with all lubricating oils and kerosene, arid from another with all fuel oils and benzine. It is perfectly obvious that the result must be that, whatever price they like to charge us, Ave must pay. ' I shall show exactly how that affects the Navy. and how it has affected the consumer.

The position as so far set out is this : Oil is an essential of modern life. Broadly speaking, those nations are most prosperous that use the most oil. The United States of America consumes 6,000,000 tons of benzine a year, or about six times the total pre-war consumption of the United Kingdom and all Europe. America is the most prosperous nation in the world, and she is prosperous because she has recourse to machine production, and 'machine production is more and more becoming production by machinery driven by internal combustion or oil engines. It is most important to note this fact, foi- it shows that oil is the key of industrial success.

We depend here for our existence as a nation on oil for fuel for our Navy. We depend on oil for our industries, and for those means of production which we must have. When I was in France, twelve months ago, one of the most striking signs of the times was the tremendous number of .tractors adapted for farming. The oil engine has' revolutionized or is revolutionizing the industries of the world. During the Avar tens and hundreds of thousands of tractors were put on the land in order to provide food for the fighting millions. Oil was the spirit of their life. With oil the millions made

Avar, with oil they tilled the land, and with oil they- drove battleships, merchantships, and submarines. I have shown that six or seven great companies Own the means by which the great mass of the people of this world must live. We are in this position : We must have oil for our defence and for our industries. We have no oil of our OWn and no assurance of adequate supplies from overseas. All the supplies we do get come from foreign nations and from companies whose actions, I suppose, are governed by commercial "principles, and will sell or refuse to sell, as the mood, or the opportunity, or the inducement, suggests. The position can hardly be said to be satisfactory. We must have oil, Ave have none here, and cannot rely on getting it from abroad. It must not be forgotten, either that foreign .oil when it comes here must be refined oil. We have neither crude oil nor a refinery for treating it.

This brings me to a point' I said I wo.uld touch upon. We firmly believe - I do, at any rate - that we shall find oil in this continent or in one of our Territories. I hope that I am' not one of those unreasoning optimists who sees things just as he wants to see them, but I believe there are abundant signs for those who have faith that Ave are going to find oil. But when Ave have found it, it will b« useless to us unless Ave can refine it. If Ave found oil to-day in New Guinea, we could not use it until it was refined,- .and it will take two years to build a refinery. Crude oil cannot be used, so that if for no other reason, Ave ought, to immediately provide means for refining oil. At present we have neither any guarantees of oil from abroad, nor supplies of indigenous oil, nor means of refining.

The first essential is that we shall have effective guarantees of adequate supplies of oil, and the second is that we should put up a refinery to deal with them.

I wish to deal now very shortly with another phase of this question - the price of oil. I have said that we must have adequate supplies of oil, and, what is obvious., both for our national and industrial needs, that we should get them as cheaply as possible. In a moment or two I. shall show what it costs us to buy oil for the Navy. If we are to be a great manufacturing nation, we can only be so on the basis of machine production. Whether it be in the primary or the secondary industries, our production must be based on machine production, and on systematized and organized effort; and at the basis of all modern production some kind of fuel is essential,' and oil is one of the most convenient and effective forms of fuel. Now let us take the prices, and see how they have increased during the past few years. The average . price per unit of quantity as declared at Customs was for -


Residual oil is the oil we use for the surface ships of our Navy. Solar oil is used for submarines. Now I come to the prices on the Australian markets -


These figures all relate to the refined products of oil. We come now to the base from which all these spring - the crude oil. Taking first what is referred to in the oil trade as the bellwether of oil, Pennsylvanian crude, we find that its price has risen from less than $2 in 1914 to $6 in 1920. There has been a rise of $2 in the last twelve months, and a sharp rise in the last few months. I hope honorable members will not forget that six companies own these oil supplies. I have mentioned the names of eight, including the Anglo-Persian Oil Company, and one of them is the Mexican Eagle Company, which is controlled by the " Shell " group. Whether all are related or interwoven I cannot say. But the fact remains that this essential to the life of modern man is controlled by a few great corporations, who regulate the price we pay. I shall show what this means to us as a nation, quite apart from what it means to individuals in the community. In 1910 the Australian Navy paid £3 5s. to £3 10s. per ton for its oil. In 1914 the price rose to £4 5s. and £4 10s. In 1920 the price was £9 10s. to £10. As we are buying 50,000 tons per annum, we are now paying per annum over £200,000 more than we should have had to pay in 1914 - or nearly as much in one year as honorable members are now asked to agree to provide for the establishment of a refinery in Australia, assuring to Australia 200,000 tons of crude oil per annum, which will supply more than is required for the needs of the Navy and for half the motor and lighting requirements of Australia. I repeat that we are at present paying for the oil we need for the Navy over £200,000 more per annum than we were paying in 1914. I do not say that we are paying more than a fair price. I do not know what is a fair price for the oil. If I am asked whether the increase in the price of petrol or crude oil is due to the augmented demand for oil or to profiteering by the great oil companies, I say I do not know. The demand is phenomenal. In America it is such that it is fast overtaking the visible supply, and it is a matter of less and less importance to that country whether she can find a market oversea for her oils or not. She has a huge 'home market. But whether that demand is responsible for the present price of oil, I cannot say; but what I do know is that the price of oil to-day is determined by the demand and by the six or seven great oil companies. I leave it to honorable members and the country to determine which of these two factors is the greater in the matter of fixing the price. I deal with the facts, which are pretty obvious, namely, that we require oil, that we must have adequate supplies, that we must get them as cheaply as possible, and that we have no means of getting them at all, and certainly no means of getting them cheaply.

As I said a little while ago, the United States of America alone uses about 6,000,000 tons of benzine per annum, or about six times the pre-war consumption of the United Kingdom and Europe. I have pointed out what I think it was very proper to point out - that America is, perhaps, the most prosperous country in the world - and there is a vital connexion between these two things. -Canada, with far less need to erect refineries than we have, has fourteen of them, seven having been erected since 1914, and these have a total capacity of 1,500,000 gallons per day. Canada has fourteen refineries, Australia not one! It is very obvious that immediate steps ought to be taken, as is provided in the Bill, to insure ample supplies of crude oil and to establish a refinery to deal with them and such other indigenous supplies as may be found in Australia or in the Territories. This Bill is a measure to ratify an agreement for that purpose made with the Anglo-Persian Oil Company.

I do not know that it is necessary to dwell at any great length upon the position which the Anglo-Persian Company occupies in the world. Its history is pretty well known. It is crowned, so to speak, with a halo of romance, and we may derive some satisfaction from our knowledge of the connexion of the founder of the company, Mr.W. K. D'Arcy, with Australia. He was one of the directors of the Mount Morgan Gold Mining Company. Some twenty years ago he acquired interests in Persia, and spent a large fortune in endeavouring to develop the oil-bearing regions there. He lost much money, but managed to interest far-seeing and enterprising men in his schemes. The pioneers had a chequered career until in 1904. Lord Fisher, that most remarkable man, who was First Lord of the Admiralty, and who was one of the first to foresee the part that oil would play in the life of the world and as a fuel for the Navy, concluded that without oil that arm of defence was likely to be ineffective, and looked around with the object of securing within the British Em- pire sources of supply. He was mainly responsible for preventing the Persian concessions from falling into German hands. Honorable members will recall the Kaiser's dream of a railway from Berlin to Bagdad. The East ° was to be his, with all its greatness and all its richness. Thanks to Lord Fisher, the company, which was then struggling, found its feet, and in 1909 it was formed into what is now known as the Anglo-Persian Oil Company. In 1913 a Bill was introduced into the House of Commons under which the British Government became officially responsible for the progress of this company, and on the outbreak of the war they acquired a controlling interest in it. The position now is as follows: - The capital of the company is £20,000,000, the issued capital is £17,500,000, made up of £5,000,000 worth of 5 per cent, debentures, £5,000,000 worth of 6 per cent, participating preference shares, and £7,500,000 of ordinary shares. .The debentures carry no voting powers, the preference shares carry one vote per share, and the ordinary shares two votes per share.* The votes number 20,000,000, of which the British Government hold 10,001,000 on account of 5,000,000 ordinary and 1,000 preference shares. The balance of the shares are held as follows : - The Burmah Oil Company - a purely British company - holds 2,500,000, less a negligible number which are held by the heirs of Lord Strathcona and Mr. Knox D'Arcy, its founders; and the British public own 4,999,000 preference shares. The investment of the British Government in the Anglo-Persian Oil Company cost them £5,000,000, and is roughly estimated to be worth £50,000,000 on the open market to-day. This company has been developed entirely by British capital and British enterprise. It is controlled by the British Government, "which holds a majority of its votes. It has no relation, direct or indirect, with any of the companies I have mentioned or with any other company. The Burmah Oil Company is one of the companies which was formed in Burmah by British capital, and was itself the company which assisted the infant Anglo-Persian Oil Company to its feet. The latter company owns, in Persia, Timor, Mesopotamia, Africa, Trinidad, Borneo, and other places, extensive oil fields. It is estimated that the Persian fields alone are as large as the combined fields of the United States. It has a fleet of tank steamers in being of 230,000 tons, which is to be built up to 500,000 tons, and this fleet will be worth £15,000,000. Here, then, is a company purely British in its origin, in its development, in its capital, and in its control, which possesses the most extensive oil fields in the world. It has a fleet and oil wells which make it perfectly independent of all shipping rings and oil corporations. It is willing to make an arrangement with the Commonwealth Government to erect a refinery here, and to supply this country with 200,000 tons of crude oil per annum at current rates until such time as we find oil in Australia or its territories. When we find it, and in proportion to the quantity in which we find it, the company's oil will be retired and our oil will be refined at the refinery. In this refinery, the capital of which is set down in the schedule at £500,000, we are to take up £1 more than half of the shares, in order that we may exercise exactly the same control as that which is enjoyed by the British Government. We shall be entitled to half the profits accruing from the enterprise', we shall be assured of ample supplies of fuel oil for our Navy, and we shall give employment to a very large number of men, either immediately or in the immediate future. We shall also be ready to refine our own oil when it is found.. From, this 200,000 tons of crude oil it is estimated that we shall get per annum 40,000 tons of benzine, 33,300 tons of kerosene, 9,045 tons of lubricating oil, 72,000 "tons of fuel oils, 4,500 tons of wax, 9,000 tons of pitch. These commodities, other than fuel oils, will be sufficient to supply about onehalf of our total requirements; while in regard to fuel oils the supply will be more than sufficient. The agreement is, for all practical purposes, an analogous one to that entered into by the company with the British Government, excepting, of course, that it is of an incomparably narrower scope. But so far as Australia is concerned, and to the extent that we put our capital into the undertaking, our position is analogous. It will give us the same control over this refining company that the British Government has over the Anglo-Persian Company. The agreement is with the Anglo-Persian Company for ' the purpose of forming a refinery company which will be registered in this country and in this State. The net effect will be that the Commonwealth Government will have a half share in the enterprise, the Anglo-Persian Company will have one-half of the remainder - that is to say, a 'quarter share - and the British Government will also have a quarter share. This Anglo-Persian Company is now a company which is truly Imperial in the best sense of the term. It is a company whose supplies are scattered throughout the Empire, and whose capital and resources, as well as the enterprise to which it owes its development, are entirely British. This company, controlled by the British Government, comes to the Commonwealth Government and asks us to become a partner with it in this venture. If the inducements were much less attractive than they are, I should be one of the first to advise honorable members to accept it. But being in the position we are, and asked by a company such as this, British in essence, controlled by the British Government, it would be incredible folly for us to reject this offer. For an expenditure of £250,000 we are offered a partnership with this great company, whose experience in much wider fields absolutely insures success in this enterprise. I remind honorable members that it is the Anglo-Persian Company's knowledge and experience that we are buying, under this agreement. It is not proposed to interfere in any way in the management of this refining company, but we shall have the right to prevent it' from selling its refined oil to any foreign buyer without our consent. We shall also be able to insure a sufficient supply of oil for our naval requirements, and have authority to veto any proposal likely to interfere with the status of the company. In addition, if at any future time further capital is to he called up, this may only be done with the consent of the Commonwealth Government; and in any case the relative positions must be maintained so that the Government will always hold a majority of the shares.

It is impossible at this stage for me to anticipate all the points - I can hardly call them objections - that may arise in honorable members' minds, so I shall not endeavour to do so. I would not be in order if I attempted to deal with .the schedule, item by item, but I may inform honorable members that I have been through it very carefully. In fact I am responsible for its present form, and as Attorney-General I declare that it amply safeguards the interests of the Commonwealth. It provides, inter alia, that the Government may resume the works after a period of fifteen years have elapsed, but whether the Government will be inclined to do so or not, I am unable to say. I do not know that very many of us would care to pierce the veil of the future to that extent, for I have no doubt some honorable members feel that fifteen years hence they may be in a place where oil would be regarded as an embarrassment of riches. In my opinion, the agreement is a good business deal for the Commonwealth. It is one of those schemes that are long overdue, but long overdue as it may be, the proposal is a clear indication that the war has made this country known in places where, perhaps, it was not heard of before. This great firm, with others, is coming to Australia. Some are coming for one reason and some for another, but apparently they all realize with us that Australia is a good place to be in. I have told the representatives of these firms that we have our troubles here just as other countries have, but that nevertheless Australia is a good place for all men to live in. These big English firms understand the trend of the times, and evidently they are satisfied that Australia presents to them opportunities which are not to be found in other countries. I have much pleasure iri moving the second reading of the Bill, and I strongly advise honorable members to assent to it.

Debate (on motion by Mr. Tudor) adjourned.

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